COMMENT

Get £4,000+ Every Year On Retirement

By Neil Faulkner (TMFVertigo)
April 26, 2006

Over the past few days when I've used The Motley Fool search engine, I've been stumbling across my editor's old articles from back when he was a lowly writer like myself. I mentioned my findings to him and he cringed. 'It's OK!' I assured him, 'They're good. But I can send you my edited versions if you like?' He responded: 'And I can send you your P45.' 'I'll shut up now,' I said. (1-0 to the editor.)

But I did stumble across one if his articles about National Insurance that proved it's always a boring subject. Whoops! I mean not always a boring subject. (1-1) In fact, as it could significantly affect your quality of life when you retire, it's pretty important too.

The basic state pension is based on your NI contributions. This year a fully paid-up single person can expect £84.25 a week, which is £4,381 per year. It's not enough to live on, but it's a good place to start.

The full basic state pension (April 06 to April 07)

Description	Full basic state pension (per week)
Single person	£84.25
Married couple* if just one has paid full contributions	£134.75
Married couple* if both have paid full contributions	£168.50
Divorced*	As single. If you missed some years in which your former spouse paid, these may be taken into account too
Remarried before pension age	As single or married. You can't claim on a previous spouse's NICs
Widow*	As divorced

*Applies to civil partnerships, dissolved civil partnerships and surviving civil partners.

To qualify for a full basic state pension, you need to contribute a set amount each year for enough years. A qualifying year is one where you've earned at least the lower earnings limit (£4,368 this year). At present, a woman with a working life of 44 years needs to contribute at least this amount for 39 years. Between 2010 and 2020 this will rise gradually to 44 years, because the state pension age for women is rising from 60 to 65. For men, it's already 44 years. Your 'working life' is usually from 16, although the government tops you up from the ages 16 to 18 if you don't earn enough.

If your record is incomplete, you'll get a smaller state pension based on the number of years you have. If you've got less than a quarter (which is usually 10 or 11 years) you won't get a basic state penny. Anything more than this and you get an equivalent percentage. For example, if you make full contributions for a quarter of your working life, you'll get a quarter of the basic state pension, which this year makes it £21.06 per week.

How to check your record

HM Revenue & Customs (HMRC) sends out instructions to people with gaps in their records, albeit 18 months later. If you've binned these, you can request a state pension forecast. If you think they're wrong, check your P60 forms, which state how much you've earned. Your employer gives you your P60 at the end of each tax year and you should keep every one of them. If you've lost any, your employers may be able to give you a copy, but they're not obliged to.

Making additional contributions

If there's a shortfall, you can normally go back six years to make additional contributions. However, as the government messed up from 96/97 to 01/02 you can make additional contributions for these years until 5 April 2009. You'll probably need to make contributions of a few hundred pounds for each missing year, but this doesn't seem too bad considering the full basic state pension is worth over £4,000 a year.

This is simplistic, as there are more conditions that might increase or decrease the amount you get. To see what you may need to contribute for each year and to get answers to more specific questions about state pensions, visit the HMRC website.

P.S. If this article has been boring, it's my editor's fault. (Final score: 2-1 to me!)

> Save for retirement by getting an ISA or a pension.